French Growth to Miss Hollande’s Target in 2014, Insee Says

The French economy will expand less than President Francois Hollande’s government expects this year and unemployment will climb as consumer spending and exports fail to accelerate, the national statistics office predicted.

Gross domestic product will grow 0.7 percent in 2014, Insee said yesterday. The government is counting on growth of 1 percent to help meet its promise to reduce the budget deficit to 3.8 percent of GDP.

“The purchasing power of households has improved, of course, but too modestly to bring a real acceleration in spending,” Insee said. “Faced with demand that isn’t taking off and margins that remain low, companies are not inclined to invest and French exports won’t fully benefit from the improved world trade.”

The remarks show how Hollande is struggling to revive Europe’s second-largest economy after two years in office. The Socialist president has pledged to cut public spending by 50 billion euros ($68 billion) over the next three years and halt tax increases in an effort to bolster confidence and investment.

Finance Minister Michel Sapin said that the government will maintain its target in the expectation that a tax credit for business that is kicking in now will help growth accelerate in the second half.

Reduced taxes for businesses “should restore confidence,” Sapin said in an e-mailed statement. This should lead to “investment and hiring,” he said.

No Improvement

So far, business sentiment has failed to improve. The Bank of France’s index of manufacturing sentiment fell to 97 from 98 in May, while the Markit Economics Purchasing Managers Index for services and industries declining to 47.8 this month from 49.6. Insee’s own measure of business confidence unexpectedly fell to a 10-month low of 92 in June, the statistics office said today in a separate release.

“The business climate as measured in surveys stopped improving nine months ago and remains below its long-term average,” Insee said.

The national statistics office predicts that unemployment will continue to climb in the second half, reaching 10.2 percent by the end of the year.

“Weak growth makes it impossible to predict a serious improvement on the job front,” Insee said. “The slight improvement” in the number of people working “will come exclusively from subsidized jobs and public hiring. It won’t be enough to absorb the increase in the number of people of working age.”

Before it's here, it's on the Bloomberg Terminal.